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Social Enterprise: Impact investing & social missions

June 1, 2016

by Suzanne Perry
Originally posted on TrendTrack, a GrantStation blog.

There’s been lots of buzz in recent years about impact investing – the idea that people can make money by investing in projects that do good. But where does that leave nonprofits, which can’t promise significant financial rewards to their donors?

In danger of being neglected, says Jim Schorr, president and CEO of the Social Enterprise Alliance (SEA). “Not all social problems or social issues can be addressed with solutions that are profitable to the point where they pay investor returns,” he says.

Schorr’s organization represents more than 1,000 “social enterprises,” or organizations that take a business-like approach to their social missions. He says it’s great that interest in impact investing is growing. But he worries that nonprofits will get left behind because the conversation is increasingly focusing on the “sexiness” of socially minded for-profit entities like “B Corporations.”

Meanwhile, nonprofits are not exactly drowning in money. “The challenge in attracting growth capital for nonprofits in general,” he says, “and nonprofit social enterprises in particular are tremendous.”

As a good example of impact investing that helps nonprofits, Schorr points to RSF Social Finance, a nonprofit financial-services group that offers low-interest loans to social enterprises that generate small returns for the lenders.

Before talking to Schorr, I glimpsed at the SEA’s website because I was curious: what makes a nonprofit a “social enterprise”? The site shows that some of the group’s members are veteran organizations that the average person would probably not think to categorize that way – like Goodwill Industries and Catholic Charities.

But both have adopted “market-driven approaches” to aid their social missions, which fits the SEA’s definition of social enterprise. Catholic Charities of West Tennessee, for example, operates St. Bernard’s Biscuits, a company that makes dog treats staffed by clients and volunteers at the Genesis House homeless shelter.

Schorr says SEA plans to conduct a sort of “census” to find out exactly how many social enterprises exist in the U.S. “We don’t know if there are 10,000 or 100,000 but we’re going to find out,” he says.

Schorr will be a panelist at GrantStation’s Innovations 2016 forum in June in New York.

To get a view of social enterprise from the ground, I talked to another panelist—Jenny Goldstein, development director at Digital Divide Data (DDD), a nonprofit that offers “business process outsourcing“ services. It trains young, disadvantaged workers in Cambodia, Laos and Kenya to perform services like data entry, digitization, and photo editing for business clients—and also gives them university scholarships and loans.

Goldstein discussed the built-in tensions that social enterprises face between their social mission and business operations. For example, traditional outsourcing companies hire people when they have work and fire them when they don’t. But barring a disciplinary problem, DDD never fires anyone. Conversely, it had to abandon an early program that placed Cambodian sex workers in jobs because many were illiterate and “you can’t hire someone who’s illiterate to do a job for Amazon.”

While DDD used to rely mostly on philanthropic grants, more recently it has explored other types of financing like loans, she adds. “Traditional donors and foundations,” she says, “want to hear more about uplifting stories, creating impact, disrupting the equilibrium.” Business people, she says “want to know more about the balance sheet.”

TheInnovations 2016 forumwill feature panels on both Impact Investing and Financing Social Enterprise. Other panelists will include William Burckart of Burckart Consulting; Shauib Siddiqui, Acumen; Mamie McDonald, Warnock Foundation; and Don Shaffer, RSF Social Finance.